Estate Planning – More Than Just Inheritance Tax

What is Estate Planning?

Often when clients talk about estate planning, they wish to discuss ways to minimise any potential Inheritance Tax (IHT) liability. This is understandable, but sometimes it is worth taking a step back and determining what their key estate planning goals are before drilling down on ways to reduce the IHT liability.

A key goal of any estate planning strategy is to ensure that the people left behind are financially protected and that your wishes regarding your property and other assets are carried out in terms of:

• Who you want to benefit from your estate.
• What they should receive.
• When they should receive it.

Legacy

We often think of our legacy as the wealth we leave behind, but our legacy can be much more than that, it can encompass our values especially around education, hard work and religion.

It can also be about passing on family history and traditions. How many of us with elderly parents or grandparents take the time to ask questions about their lives growing up or how they dealt with big events? Most of us know stories that get told at family gatherings but how will that history and those traditions be passed on to the next generation? I know that many people are beginning to record interviews with their elderly relatives on their smart phones which can then be passed down to future generations.

Other Estate Planning Considerations

Depending on your circumstances, your estate planning strategy may include the following:

• Instructions for your care if you become disabled or incapacitated.
• Appointing a guardian (generally via your Will) to look after the interests of minor children.
• Provide for family members with special needs without disrupting any state benefits.
• Provide for loved ones who might be irresponsible with money or who may need future protection from creditors or divorce.
• Provide for the transfer of any business assets.
• The giving of money or time to charitable causes during your lifetime.

More and more clients are leaving their loved ones a set of instructions in the event of their death that include details of how to log in to various online accounts and the contact details of who to telephone.

The Importance of Early Estate Planning

Many people tend to put off estate planning until much later in life, often when it is too late to put an effective strategy into effect. We know that discussing what would happen on your death is a difficult discussion to have and people view it as quite morbid.

However, by putting an effective estate planning strategy in place, it means that you can have the reassurance that comes from knowing that your financial dependents and beneficiaries will be financially secure in the event of your death.

There are a number of advantages to formulating an estate planning strategy sooner rather than later:

• Estate Planning becomes an integral part of the financial planning strategy and decisions can be made with regard to making gifts in the knowledge that this is not going to compromise your current standard of living.
• Where gifts are being made and these are Potentially Exempt Transfers (PETs), it starts the seven-year clock rolling. If you make a gift up to your nil rate band, for example, and you live for seven years, then the nil rate band can be used again for further IHT planning. This could potentially save you ￡325,000 x 40% = ￡130,000. Someone in their sixties with a life expectancy into their eighties could potentially use up to three nil rate bands.
• You will probably never envisage losing your mental capacity, however, without a Lasting Power of Attorney, the financial impact on your dependents could be severe which would compound matters at an extremely stressful time.
• At younger ages, a joint life, second death Whole of Life policy can be relatively cheap, especially on a Maximum Cover basis. This can provide cost-effective cover for at least ten years whilst an effective estate planning strategy is put into place. When the sum assured is then reviewed after ten years, hopefully, the value of your estate may have fallen and that the existing premiums can cover the reduced IHT liability.??

Involving Other Family Members

Where possible, we believe that it is useful to involve other family members when articulating your estate planning goals. This can avoid any surprises around what family members were expecting to receive following your death. Also, it gives family members a greater understanding of your goals and it gives you an opportunity to discuss those goals with your family.

Ongoing Process

An estate planning strategy should be an ongoing process, not a one-off event. It should be reviewed and updated as part of your overall financial planning strategy to reflect any changes in your circumstances or changes to legislation.